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Crisis measures for Western European housing markets Urban Institute Peter Boelhouwer OTB Research Institute for the Built Environment Crisis measures for Western European housing markets 1 6-4-2010 Content • Introduction • Crisis on the general market and the impact on housing markets • How big is the housing crisis? • Measures taken • Evaluation • Influence of the structure of the housing market Crisis measures for Western European housing markets 2 6-4-2010 Introduction • Economic crisis started on the American Housing Market • Overview of housing market related crisis measures in nine Western European countries • General loss of confidence amongst prospective home buyers • Generous welfare states can avoid repossessions • The rate of speculative building • Support to the house building industry or housing market in general • Support to households • Relation with other policy fields Crisis measures for Western European housing markets 3 6-4-2010 Economic and housing market indicators by country Bel Ger General economic indicators Growth GDP 2009 -2.9 -5.0 Growth GDP 2010 0.6 1.2 Unemployment average 2007 – 2009 Unemployment latest (jan 2010) IRL ES F NL AT SW UK -7.5 -1.4 -3.6 -0.8 -2.2 1.2 -4.5 0.3 -3.7 1.1 -4.9 1.4 -5.0 0.9 7.5 7.7 7.5 12.5 8.5 3.2 4.4 6.9 5.5 8.0 7.5 13.8 18.8 10.1 4.2 5.3 9.1 7.8 -7% -6% -7% 1% 6% -18% Down up up -33% nav -10% Housing market indicators House price change 0% -12% -23% Mid 2007 – mid 2009* Latest house price up stable Down (rapidly) trend Transactions 20072008 - Building permits 20072008 - 4 % -2% -36% (rapidly) stable stable nav -11% up -46% -6% -20% -60% -17% -1% nav -16% Construc3 ting new % series *Mid 2007 the house prices in most countries reached their highest levels; mid 2009 is the year where most nations have data available. Note: Germany and Belgium = single family dwellings Source: GDP and Unemployment = Eurostat; House price change = national statistical bureaus and Hypostat 2008; Transactions 2007-2008 = Hypostat 2008; Transactions latest is national sources. Crisis measures for Western European housing markets 4 6-4-2010 House price indices annually and recent quarters (1) 250.0 200.0 150.0 100.0 50.0 0.0 2000 2001 2002 Netherlands 2003 Germany 2004 2005 England and Wales 2006 Belgium 2007 2008 Ireland Crisis measures for Western European housing markets 5 6-4-2010 House price indices annually and recent quarters (2) 300 250 200 150 100 50 0 2000 2001 2002 2003 France Spain 2004 2005 Austria 2006 2007 2008 Sw eden Crisis measures for Western European housing markets 6 6-4-2010 House price indices annually and recent quarters (3) 120.0 100.0 80.0 60.0 40.0 20.0 0.0 2007 I 2007 II 2007 III 2007 IV Netherlands 2008 I Germany 2008 II 2008 III 2008 IV England and Wales 2009 I 2009 II Belgium 2009 III 2009 IV Ireland Crisis measures for Western European housing markets 7 6-4-2010 House price indices annually and recent quarters (4) 115 110 105 100 95 90 85 80 2007 I 2007 II 2007 III 2007 IV 2008 I 2008 II 2008 III 2008 IV France Spain Austria 2009 I 2009 II 2009 III 2009 IV Sw eden Crisis measures for Western European housing markets 8 6-4-2010 Measures taken • Protection of home owners: avoiding payment problems and eviction • Stimulating demand for a new existing owner occupied homes by households • Stimulating social/public housing associations to take on unsold completed new dwellings initially targeted for owner occupation • Stimulating production of social/public rental dwellings as an anti-cyclical measure for the construction sector Crisis measures for Western European housing markets 9 6-4-2010 Type of measures taken by country Bel Ger IRL ES F NL AT SW UK No Yes Protection of home owners Yes No Yes, but Yes limited Not yet? Yes No Stimulating demand new owner occupied homes Yes No Yes Yes Yes Yes Yes, but Yes, but Yes limited limited Stimulating demand existing owner occupied homes No No Yes Yes No Yes No No Yes Converting unsold new owner occupied dwellings into rental by public institutions No No Yes No Yes Yes No No Yes Stimulating construction of public rental dwellings with additional public grants Yes No No Yes, but Yes limited* No No No No Reanimating high potential housing projects with public grants No No No No No Yes No No Yes Number of yes 3 0 3 1/2 4 5 5 1/2 5 1/2 *Shift of subsidies to rental but no extra budget Crisis measures for Western European housing markets 10 6-4-2010 Crisis measures what to do and what not to do? • • • • • • • Number of countries have taken only limited action Extra protection for home owners to avoid repossessions Attempts to get rid of the overhang/unsold dwellings Stimulating demand for newly constructed dwellings Building of new social housing Buying unsold new dwellings by social landlords Unlimited speculative building and a laissez faire attitude on planning • Differences in the structure of the housing market are quite important to explain the crisis and measures Crisis measures for Western European housing markets 11 6-4-2010 Structure of the (owner occupied) housing market: Dynamic markets • Unified markets • New and existing dwellings compete for purchasers • Existing tenures influence activities in new building construction • Market sub-sectors are linked together trough transactions by existing home owners • All parts of the national owner-occupied markets are linked by common market forces • Speculative promotion • Speculative house building • Investment good • Price of existing homes determines the price of new properties Crisis measures for Western European housing markets 12 6-4-2010 Structure of the (owner occupied) housing market: Static markets • Fragmented markets • Domination by first time buyers • Variety of sub-markets differentiated by region or housing sector • Low rate of mobility of existing home-owners • Self building or self commissioned house building • Consumer good • Costs of construction and land have a significant relation with house prices Crisis measures for Western European housing markets 13 6-4-2010 Sensitivity of housing markets to the economic climate • Dynamic markets or more sensitive than static markets • Effects of crisis are strongest in England and Ireland: limited stabilizing factors through government policy or via financial industry, buildings are built speculatively and in Ireland few planning restrictions • Dutch market for new houses has been hit hard • Germany prices of existing dwellings show a strong decline • Belgium least trouble form the economic crisis Crisis measures for Western European housing markets 14 6-4-2010 Conclusions • Countries that are severely affected by the crisis are also confronted with the largest problems on the housing market • Difficult to establish the effects of the economic crisis and the effect of the structure of the housing market and stabilizing factors • Possible relation to the general economic structure and the housing market structure: a nation that is highly sensitive to the general economic climate also has a housing market structure that is sensitive to the economic climate Crisis measures for Western European housing markets 15 6-4-2010 End Crisis measures for Western European housing markets 16 6-4-2010